Do you know how your investments are performing?

If you want to attract good jobs or retail rock stars, you have to shell out money, usually in the form of tax breaks and upfront financial perks. At least that’s the calcified conventional wisdom. Most cities and other governments justify such incentives by saying they make a place competitive and create jobs.

Some economic developers dazzle us with “metrics” and “matrices” and “multiplier effects” and other shiny jargon as they attempt to convince communities to sweeten the pot for some business they’re courting.

It all looks good on paper. But who’s checking to ensure the pretty promises materialize as advertised, and do reports exist in the public domain that would allow that checking? In our experience, they don’t. It’s all about the public-private partnership before the deal is done, but everything is private proprietary information afterward.

Rarely have we heard about elected officials demanding performance and accountability measures before the deal is done to prevent all the flash and metrics and matrices from later disappearing behind the corporate veil.

We know from experience that most private businesses, even when accepting public money, often refuse to answer questions about their workforce. We know private businesses lay off employees when the bottom line demands it. We know hiring plans change. So, how do we ever know a private firm is keeping its end of an economic development bargain?

The question everyone should be asking, particularly before doling out public money, is just how effective tax breaks and other incentives are in stimulating economic development. A 2014 report by governing.com revealed that the “extent to which local governments scrutinize economic development programs varies greatly, and many remain without basic accountability measures.”

Of about 1,200 local governments and agencies surveyed, three-quarters reported measuring the effectiveness of business incentives, while 73 percent conducted cost-benefit analyses, according to the report.

A small share (56 percent) reported always requiring performance agreements, while 27 percent had agreements in place for some incentives and 17 percent did not use them at all. Only 36 percent linked economic development priorities to budget processes, according to the report.

It could be that all the economic development agreements across Galveston County over the years are living up to the hype. But how do we know? How do we measure? And who’s really keeping track? We can’t think of an instance when a city has withdrawn development incentives because of underperformance.

We understand commercial developments can ease the ad valorem tax burden on residents. And we often and in general have supported cities who strive to attract and, more importantly, retain good jobs. We’re not opposed to incentives or economic development.

But we think all cities in this county should require performance agreements when handing out public money. That’s why we’re cautiously encouraged by League City’s reworking of its economic development policies.

Earlier this month, League City Economic Development Director Scott Livingston publicly presented some policy changes, including offering tax rebates instead of tax abatements to companies the city wanted to woo. An abatement is a tax reduction granted to encourage economic development and it’s usually an upfront arrangement. Under new policies, the city would instead offer tax rebates after a company has put down roots, hired people and made property improvements. Before giving the tax rebate, the city could measure the company’s performance in terms of hiring and ensure it did what it said it would do.

League City is moving in this direction, and we hope to see other cities follow suit.

We suggest all cities should begin regularly measuring the effectiveness of incentives and make those reports public.

In changing its policies, League City said it would, from now on, use the word “investment” instead of “incentive” when dangling public funds to private enterprises. Whatever you call it, it’s taxpayer money. And taxpayers have a right to know how their investments are performing.

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(8) comments

I agree wholeheartedly: When a city gives tax breaks, it should require a performance agreement to make sure the private partner follows through on its promises to generate new taxes or jobs. But who is going to hold that private partner accountable down the road if it fails to perform? Future city managers, city attorneys and city councils won't have the stomach to take on a corporate adversary and its legal team. The city of Galveston saw that recently with its Beachtown tax reinvestment zone. The developer failed to perform, yet the city acquiesced rather than hold him accountable.

The bottom line is that long-term performance agreements are unenforceable, not for legal reasons, but for political ones.

No matter how strong an agreement is, it still requires political will to enforce it. Galveston's Redevelopment Authority had a fairly strong development agreement with Tofigh Shirazi, the Beachtown developer, but he was successful in getting city council to replace members of the RDA who wanted to enforce the agreement with new members who agreed to weaken it. City council affirmed the weakened agreement earlier this month.

Mrs Beeton. I do not agree. By Iron Clad I meant it cannot be modified or changed in any way, shape or form - forever, and it should be written so a normal human being with any common sense can understand that it can't be changed or modified. It's really strange that after years and years of attorneys having being paid to write contracts, these so-called legal contracts are still "open for interpretation". I call BS.

If the parties involved do not want to enforce the agreement, it will not be enforced.Unless you as a citizen want to take legal action or vote the city council out, it will not happen.Mrs Beeton, gave one example of this happening now.

"all cities should begin regularly measuring the effectiveness of incentives and make those reports public" I agree completely.League City has already implemented "380 agreements" to multiple companies. These seem like tax rebates to me. I'm not understanding what's different about what Mr. Livingston is proposing.

To me, it is mind boggling that educated folks do not understand what an iron clad agreement is. It is written expressly forbidding any changes or modifications. It can even include specific examples, and make it clear that the items listed in the agreement are not changeable. Pretty simple really. Problem is, attorneys working for both sides allow loop holes to insure they have a future job.But, if I’m wrong, then Galveston should return Moody Gardens to the Moody Foundation, put the land and business back on the tax rolls and start receiving property taxes and other benefits that other businesses are required to pay.

All right, Mr. Cochrane, I concede that you are right. These agreements should be written in a way that leaves no room for interpretation, with language a third-grader could understand and lots of examples of what does and does not constitute a default and what happens in that event. City attorneys often consider the members of city council who constitute the majority bloc to be their client, rather than the city itself or the residents - as a result, they serve a political interest, not a public one, and provide political cover to council members rather than straight-up legal advice. I have heard some of them make ridiculous statements of law when giving away the farm.

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